Bangkok--25 Apr--Fitch Ratings
Fitch Ratings has today assigned Siam Commercial Bank Public Company’s (“SCB”, rated Long-term Foreign Currency Issuer Default ‘BBB+’/ Outlook Stable) USD300 million floating rate notes (“FRN”) with a maturity of three years an international Long-term foreign currency rating of ‘BBB+’.
The debt rating is based on the assumption of a high propensity for government support due to SCB’s large deposit share, strong institutional links and importance to the Thai economy. The ratings and Outlook of the bank and its debt issues also reflect a sustained recovery in underlying earnings and profitability on the back of an improvement in asset quality that is likely to continue despite a more challenging environment in 2006 due to rising interest rates and political instability. Fitch notes that the bank’s reserve and capital positions have also strengthened. SCB has one of the strongest universal banking franchises and management teams in Thailand.
SCB has benefited from its reform efforts adopted since the 1997 financial crisis, a strong corporate team and retail franchise, and a supportive economic environment. As the largest private mortgage lender in Thailand, SCB's performance has also been boosted by the recovery in the residential property market.
SCB reported a strong net profit of THB19 billion in 2005, up from THB18.6bn in 2004 (or from THB13.6bn adjusted for non-recurring gains on divestment of non-core business), due to stronger loan growth, improved fee income and lower provisions. SCB’s net interest margin is now among the strongest of its peers, at 3.2% in 2005. However, Fitch notes that margins and net profitability may be negatively affected by rising funding costs and increased tax expenses in 2006.
SCB’s impaired loans amounted to THB64bn or 10.5% at end-2005, down from THB76.6bn or 13.7% of loans at end-2004 due partly to net write-offs of THB9.8bn during 2005. The bank is targeting impaired loans of less than 7% by end-2006. Loan loss reserves declined to THB54.7bn due to write-offs, equal to 85.5% of impaired loans, which is now one of the highest loss coverage ratios among Thai banks. Net impaired loans/equity fell further to 10.5% at end-2005 from 16.5% at end-2004, indicating relatively strong reserve and capital positions. At end-2005, its Tier 1 ratio stood at 11.9% and its total capital ratio at 15.1%. Capital should remain strong notwithstanding dividend payments and asset growth. While the bank estimates that it will need THB4bn to 5bn in additional capital to cover operational risks under the new Basel II framework, it expects earnings growth to strengthen its capital base to fulfill such requirements without having to issue new shares.
SCB, established under the Royal Charter in 1904, is Thailand’s oldest and fourth-largest bank with approximately a 12% share of deposits and loans at end-2005. The Crown Property Bureau holds a 24% stake in the bank. SCB has leading affiliates in consumer auto finance, investment banking, fund management and insurance.
Contact: Chaiyapat Paitoon, Sorasit Vanaprasert, Vincent Milton, Bangkok +662 655 4755
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